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Consumer Groups Recommend Increased Enforcement Against Pharmaceutical Rebate Walls

Biden Harris Transition Team FTC-2.18
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On February 18, 2021, Consumer Action and U.S. Public Interest Research Group submitted recommendations to the Biden/Harris Transition team that the Federal Trade Commission increase its enforcement efforts to prohibit anticompetitive pharmaceutical rebate walls.

In the memorandum submitted to the Biden/Harris Transition Team, Consumer Action and U.S. Public Interest Research Group explain that pharmaceutical rebate walls are exclusionary contacting practices that a drug manufacturer uses to limit the ability of rivals from gaining preferred formulary access or block them from getting on formulary at all. A rebate wall is created when a manufacturer leverages its market-dominant position by offering lucrative financial incentives to pharmacy benefit managers (“PBMs”) and health insurers (collectively “payors”) in the form of an “all or nothing” conditional sales volume based rebate in exchange for preferential formulary access and denying or limiting formulary access to a rival drug (i.e., step therapy). These conditional rebates are often offered across multiple products, indications, and therapeutic specialties, the breadth of which cannot be matched by newly launched medicines, which almost always enter the market with just one approved indication and little to no patient volume. If the payor does not accept the rebate agreement, it will lose the discounts on all the covered prescriptions.

The consumer groups explain further that rebate walls stifle competition, increase costs, and restrict patient access to a wider, and in some cases more effective, range of treatment options by preventing healthcare providers and their patients from obtaining access to more effective and affordable prescription drugs. Besides reducing patient choice, rebate walls cause patients to suffer in the form of artificially inflated prices which results in higher coinsurance payments or out of pocket expenses that are usually a percentage of the list price.

The memorandum points out that J&J and AbbVie have been accused of using rebate walls to stifle competition and to protect their own blockbuster drugs. In 2017, Pfizer brought suit against J&J for using rebate walls to protect its blockbuster, Remicade, a drug used to treat rheumatoid arthritis, by securing the preferred tier on the formulary, and to stifle the entry of Pfizer’s biosimilar, Inflectra, into the $4.8 billion infusion administered therapies market. On May 5, 2020, Commissioner Rohit Chopra raised concerns about rebate walls and noted in his dissent of the FTC’s approval of AbbVie’s acquisition of Allergan that the FTC had evidence suggesting that AbbVie used its bargaining leverage and rebates on Humira to protect its preferred position on formularies from more effective rival drugs and to help with the launch of its new branded drugs, Skyrizi, and Rinvoq. California Attorney General Xavier Becerra also noted in a June 11, 2020 letter to the FTC that AbbVie used rebate walls to help its new drugs obtain preferred formulary positions.

Consumer Action and U.S. PIRG Conclude with the Following Recommendations for the FTC Transition Team

· The FTC needs to investigate and bring enforcement actions against rebate walls and abusive step therapy rules that are used to foreclose competition from branded drugs, biosimilars, and generics, which limits patients’ choices and raises patients’ costs.

· The FTC should consider using its rulemaking power to adopt a rule clarifying the anticompetitive effects of rebate walls.

· The FTC should further coordinate with the FDA by proactively identifying anticompetitive business practices including rebate walls that prevent newly approved drugs from gaining formulary access.

· The FTC should collaborate with the FDA and CMS to learn more about how rebate walls impact the availability of prescription drugs in the Medicare Part D market. Coordination between the three agencies could be very useful as CMS plays a central role in overseeing the Medicare program, making formulary and tiering decisions, and addressing rebates through rule making.

· The FTC, FDA, and CMS should hold a public joint workshop to gain a better understanding of the role rebate walls play in blocking prescription drugs from drug formularies.

· The FTC should submit a publicly available detailed written report to the Appropriations Committee regarding its efforts to address rebate walls and coordinate with the GAO on its upcoming report to Congress.

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